Crowdfunding Set to Transform How Startups Raise Money

Congress passed a law last year that allows startup companies to raise money directly from investors through online crowdfunding portals.
The only problem is the U.S. Securities and Exchange Commission has not yet released rules to tell the crowdfunding industry how to do that. It’s part of the nitty-gritty details of the Jumpstart Our Business Startups, known as JOBS Act, that are still being hashed out even after President Obama signed the bill into law last April.
Today at the Omni Hotel in downtown Austin, a group of about 250 people are meeting for the first ever Crowdfund Texas Conference to learn about this emerging industry.
“We did this in hopes of really bringing together the Texas startup community to spark a crowdfunding movement in Texas,” said Chris Camillo, an angel investor and filmmaker.
The day-long event features a variety of speakers talking about everything from crowdfunding regulations to how to succeed at crowdfunding. Startup Texas, a member of the Startup America Partnership and the Crowdfunding Professional Association are sponsoring the conference.
At the event, Camillo, who is producing “Crowd of Angels” is conducting interviews for the documentary which is set to debut at the Crowdfunding Professional Association convention in October.
During a morning panel on “Crowdfunding Investing Insiders: State of the Industry,” Scott Purcell, founder of crowdfunding platform Artic Island, said that crowdfunding was the “perfect storm” to change the world.
“It will change everything, and it’s going to be a lot of fun,” Purcell said.
D.J. Paul, formerly cofounder and chief strategy officer of Crowdfunder, agreed.
“It has the potential to be incredibly transformative,” Paul said.
The panelists estimated that the SEC might take from six months to nine months to release rules for crowdfunding that will let the practice begin in the United States.
“It’s really about politics now and I think there’s some movement,” said Maurice Lopes, cofounder and CEO of EarlyShares, a crowdfunding portal based in Miami.
The SEC has a lot of other regulatory issues to deal with, Paul said.
“An entire industry is being created by this legislation,” he said. “It’s a new asset class. No additional monies were allocated by Congress to create this new asset class. It’s appropriate to be frustrated. It’s also appropriate to understand the other issues the SEC is dealing with right now.”
No one knows how many new crowdfunding portals will be created.
Lopes with Early Shares estimates there will be hundreds of different service providers but few funding portals.
“What most people don’t’ realize is this is not a Web business. This is a financial industry,” Lopes said. “This is a heavily regulated business.”
Early Shares has spent $500,000 in legal fees and in house counsel for compliance issues in the last year, Lopes said.
“I don’t think there are hundreds of players in this space with that kind of money,” he said.
There are going to be more than 10 but there aren’t going to be as many as people think, said Purcell.
“It’s pretty few and far between to find people that understand both worlds and can put this together,” Purcell said.
Purcell estimated that there might be as many as 50 to 100 crowdfunding portals but that they’ll go through a period of rapid consolidation and get down to two or three national players in a few years.
An estimated 1,500 to 2,000 jobs have already been created by the new legislation, Lopes said. His company employs 20 people.
“It’s already working for what it was intended,” Lopes said.